The Dynamics of Offshoring and Institutions

41 Pages Posted: 26 Apr 2012  

Fredrik Heyman

Research Institute of Industrial Economics (IFN)

Patrik Gustavsson Tingvall

Stockholm School of Economics

Date Written: April 24, 2012

Abstract

Previous research has recognized that weak institutions can hamper investments and alter patterns of trade. However, little is known about the impact of institutional quality on offshoring. This is surprising, given that offshoring has become an important part of many firms’ internationalization strategy. This study uses detailed Swedish firm-level data on production and trade in combination with a large set of institutional measures of the target economies to study the relationship between institutional quality and offshoring. The results suggest that weak institutions are negatively related to offshoring in general and to offshoring of R&D-intensive goods in particular. Furthermore, firms that are able to establish long-term contracts do so by starting small and successively deepening their engagements. These results are robust to a large number of econometric specifications and various measures of institutional quality.

Keywords: Offshoring, Institutional quality, Firm-level data

JEL Classification: F14, F23, P48

Suggested Citation

Heyman, Fredrik and Tingvall, Patrik Gustavsson, The Dynamics of Offshoring and Institutions (April 24, 2012). IFN Working Paper No. 919. Available at SSRN: https://ssrn.com/abstract=2045483 or http://dx.doi.org/10.2139/ssrn.2045483

Fredrik Heyman (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

HOME PAGE: http://www.ifn.se

Patrik Gustavsson Tingvall

Stockholm School of Economics ( email )

P.O. Box 6501
Stockholm
Sweden

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